December 22nd, 2020
Daily Market Commentary
- TMAC Resources said its sale to Shandong Gold Mining didn’t receive Canadian regulatory approval and the transaction will not proceed, according to a statement. TMAC and Shandong are in talks regarding termination of the deal. TMAC expects to have sufficient cash on hand to fund 2021 sealift, but not enough to fully replay maturing debt extended to June 30, 2021
- European shares pared gains after the European Union rejected the U.K.’s latest concessions on fishing, dealing a setback to efforts to secure a post-Brexit trade deal. The Stoxx Europe 600 Index was 0.8% higher as of 11:35 a.m. London time. It had earlier jumped as much as 1.2%, bouncing back after falling the most in almost two months on Monday. As Brexit trade talks continue, the EU rebuffed British Prime Minister Boris Johnson’s latest offer on the value of the fish caught in British waters, according to two officials. Meanwhile, Johnson is trying to re-open trade routesto France as the country remains effectively isolated with dozens of countries restricting flights amid fears of a mutant strain of Covid-19.
- S&P 500 futures were steady following declines in the benchmark Monday. Treasuries ticked higher with the dollar, and crude oil dropped for a second day. The global stock rally is looking increasingly fragile after equities touched a record high last week, as lockdowns and rising virus cases overshadow a $900 billion U.S. pandemic relief package and the initial rollout of vaccines. U.S. lawmakers cleared the spending legislation, which now passes to President Donald Trump to sign.
- Japanese stocks posted their biggest drop of the month so far amid heightened investor concern over the virus and related lockdowns. Electronics and telecommunications shares weighed most on the Topix, as all 33 industry groups fell. SoftBank Group and Tokyo Electron Ltd. were the biggest drags on the Nikkei 225 Stock Average. A measure of volatility on the blue-chip gauge surged by almost 15%, the most since August. Travel stocks slid, with Japan Airport Terminal Co. dropping by the most since March. Fujifilm Holdings Corp. tumbled 6% after Japanese regulators postponeda decision on approving the firm’s antiviral drug Avigan to treat Covid-19.
- Oil extended this week’s slump on fears that rising virus infections and a faster-spreading strain will inflict a new blow on fuel consumption. Futures are down more than 3% in New York since Friday’s close. Many countries have suspended travel with the U.K., where a new Covid-19 variant is forcing more than 16 million people to stay at home. A resurgence of the virus gathered pace in Asia, with Taiwan recording its first locally transmitted infection since April and a cluster of cases swelling in Sydney. “With much of Europe back in lockdown, the prospect of a speedy return to normality is fading,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “The market has been preoccupied with positioning itself for a recovery in fuel demand in 2021. But with the latest virus strain, expectations may become more muted and prices see a further retracement.”
- Gold traded little changed as the dollar edged higher, with investors weighing the passage of a massive spending package by the U.S. Congress against the worsening global health crisis. The Senate followed the House late Monday in passing by overwhelming margins the $2.3 trillion bill, just hours after lawmakers got their first look at the 5,593 pages of text. Negotiations over the stimulus package have been a focal point for gold and silver investors and many had expected a deal to boost prices, said Avtar Sandu, a senior manager for commodities at Phillip Futures Pte.
- Pfizer Inc. partner BioNTech SE is pursuing all its options to make more Covid-19 vaccine doses than the 1.3 billion the companies have promised to produce next year, according to the German firm’s chief executive officer. The companies will probably know by January or February whether and how many additional doses can be produced, Ugur Sahin said late Monday in an interview. “I am confident that we will be able to increase our network capacity, but we don’t have numbers yet.” Sahin also said the vaccine will probably work against the new SARS-CoV-2 strain that has emerged in the U.K. Lab tests of the vaccine’s performance have already been done against 20 mutant versions; the same tests will now be run against the new U.K. version, and should take about two weeks, he said.
- Taiwan reported the first locally transmitted infection since April, ending what was the world’s longest stretch without a domestic case. Countries that had success containing the virus are now in the grip of a resurgence, including Australia, South Korea and Thailand. Pfizer Inc.’s partner BioNTech SE is exploring options to boost capacity, and its chief executive officer said the companies’ vaccine will probably work against the new virus strain that emerged in the U.K. The new variant, which prompted an emergency lockdown in London, is very likely already in Germany, the head of the nation’s public health institute said.
- Congress passed the second-biggest economic rescue package in U.S. history as part of a massive year-end spending bill, concluding months of discord between Democrats and Republicans over how to address the pandemic that continues to surge across the country. In addition to funding government operations for the rest of the fiscal year, the legislation will provide aid for small businesses, supplemental unemployment benefits and $600 stimulus payments to most Americans and their children starting as soon as next week. It also includes money for schools, airlines and for distribution of vaccines. The Senate followed the House late Monday in passing by overwhelming margins the $2.3 trillion bill, just hours after lawmakers got their first look at the 5,593 pages of text. The White House has said President Donald Trump will sign it.
- In a year that saw a pandemic upend financial markets and economies around the globe, U.S. companies and their largest shareholders raised a record $435 billion with stock sales. That’s far above the previous high of $279 billion set in 2014, according to data compiled by Bloomberg. The windfall shows how issuers have dramatically turned to capital markets amid an equity rebound from the depths of the pandemic. About a quarter of this year’s bonanza came from traditional initial public offerings, which have raised a record $100 billion — the most ever, excluding the impact of Alibaba Group Holding Ltd.’s massive debut in 2014. In a departure from past years, the largest IPOs delivered some of the best returns in 2020. Freshly minted stocks such as Snowflake Inc., Airbnb Inc. and Unity Software Inc. have soared as investors looked beyond economic, political and corporate-profit uncertainties. Companies that have raised more than $1 billion are trading 81% above their average offering price, outperforming smaller debuts.
- As investors position for an eventual return to normal next year, picking stocks in the health-care industry, where volatility spiked to the highest in more than a decade, may largely boil down to finding which companies left out of this year’s rally have the best potential to snap back. While health-care equipment providers and medical-device stocks soared in 2020, large-cap drugmakers trailed the broader market’s gains by a wide margin. That’s left pharmaceutical companies trading at the biggest price-to-earnings discounts since the Affordable Care Act was in the works in 2009. Goldman Sachs Group Inc. and JPMorgan Chase & Co. are among those who expect value hunters to take a shine to the group.
- SoftBank Group Corp. filed Monday to raise $525 million through a blank-check company, tapping into record investor enthusiasm this year for the listing vehicles. The special purpose acquisition company, SVF Investment Corp., will address sectors like mobile communications technology, artificial intelligence, robotics, cloud technologies and software, according to its filing with the Securities and Exchange Commission. The company has entered into a forward purchase agreement in which it has committed $250 million to $300 million of capital for when it combines with another company, the prospectus shows. A merger with a SPAC allows a company to become publicly traded while avoiding some of the uncertainty of an initial public offering.
- Peloton Interactive Inc. agreed to buy fitness-equipment company Precor for $420 million to gain U.S. manufacturing capabilities and new expansion opportunities. The deal is expected to close early next year and is the largest to date for the New York-based maker of pricey bikes and treadmills. Shares of the company jumped 8% in extended trading. Peloton sales have soared this year as the pandemic shut gyms and forced people to work out from home. However, the company struggled to keep up with demand. That led to long wait times and frustrated customers. By making fitness equipment closer to U.S. consumers, Peloton will be able to deliver products sooner. Existing manufacturing facilities overseas will continue operating, according to the company.
- Apple Inc. plans to build a self-driving car for consumers and is targeting 2024 to produce the vehicle, Reuters reported on Monday. The company is developing its own battery technology that could reduce the cost of power packs and extend the vehicle’s range, Reuters said, citing unidentified people familiar with the matter. An Apple spokesman declined to comment. Apple is tapping outside partners for elements of the system, including lidar sensors that provide autonomous cars with a real-time, 3-D view of the world, Reuters added. Apple is also developing its own lidar technology.
- The European Union came under mounting pressure to slow down its push for a major investment deal with China, as opposition grew to any agreement with Beijing that fails to tackle forced labor. Jake Sullivan, national security adviser to U.S. President-elect Joe Biden, weighed in with a tweet late on Monday referencing a story on the proposed EU-China accord. He urged “early consultation with our European partners on our common concerns about China’s economic practices.” The EU wants the Comprehensive Agreement on Investment to open up China’s market and eliminate discriminatory practices, but critics say that it would in turn reward Beijing with preferential access to European markets despite moves to crush dissent in places from Hong Kong to Xinjiang. A deal would be a “symbolic victory” for China, and could make it harder to forge transatlantic unity on China, according to Mikko Huotari, director of the Mercator Institute for China studies in Berlin.
- Norway’s top court dismissed an attempt by climate activists to halt Arctic oil exploration by Western Europe’s biggest petroleum-producing nation. The Nordic government beat back a lawsuit by environmental groups in the country’s Supreme Court, which ruled on Tuesday the authorities had acted lawfully by awarding exploration licenses in the Barents Sea to companies including Equinor ASA, Aker BP ASA and Lundin Petroleum AB. Greenpeace and Nature and Youth, a local environmental organization, argued in the lawsuit that the 2016 license award in the Arctic Barents Sea breaches Norway’s constitution and its commitments under the Paris Agreement.
- Japanese companies have pared back year-end bonuses for employees by the most since the global financial crisis, putting additional pressure on consumer spending amid signs of a slowing economic recovery. Individual bonuses for employees fell by 9% to 865,621 yen ($8,368), according to a weighted average of special payments by 164 large corporations tallied by major business lobby Keidanren. That’s the steepest drop since 2009, when winter bonuses slumped 15%.
- Hang Seng Indexes Co. is considering wide-ranging changes to Hong Kong’s stock benchmark that would dilute the influence of its largest companies. The five proposals include maintaining “a certain number of constituents classified as Hong Kong companies,” according to a 16-page consultation paperreleased Tuesday. Hang Seng is also considering increasing the number of companies to between 65 and 80, as well as capping weightings at 8% and fast-tracking new listings. The index currently has 52 members with weights limited to 10%. The sweeping proposal comes amid significant changes within the city’s stock market, as a wave of Chinese megacaps choose the financial hub as a preferred venue to sell shares. Hong Kong’s benchmark index is near its lowest level versus the MSCI World Index in 17 years, and the gauge’s abundance of old-economy financial stocks has made it look outdated in an age when China’s tech giants have increasing sway.
- China’s soybean imports will probably surge above 100 million tons in 2020-21, smashing the previous high set in the last marketing year, as local crushers ramp up capacity to take advantage of the country’s burgeoning demand for animal protein. Imports from the U.S. may more than double to 36 million tons amid expectations of lower output from South America, Shi Yongge, general manager of state-owned Jiusan Group, told a conference in Guangzhou. The increase in purchases is also part of China’s efforts to meet its Phase One trade deal with the U.S., he added.
- Google investments helped create India’s two youngest technology unicorns: a pair of startups that feed personalized news and entertainment to the world’s fastest-growing smartphone population. Glance, which feeds news and sports scores to phone-lock screens , is saidto have reached a valuation of more than $1 billion after completing a funding round led by Google. And VerSe Innovation Pvt, the studio behind the popular Dailyhunt news site and TikTok-like Josh app, said it passed that threshold after winning more than $100 million from Alphabet Inc.’s search giant and Microsoft Corp. Google and its American internet peers are steadily amping up their investment in India, latching onto the only other country with a billion-plus population after getting shut out of China. From Amazon.com Inc. to Facebook Inc., they’re hoping to get in on the ground floor of what they envision as a smartphone and online commerce boom that could eventually create a market to rival the world’s No. 2 economy.
- Deutsche Bank AG is considering raising bonuses for its fixed-income traders by roughly 10% to reward them for a bumper year that left Chief Executive Officer Christian Sewing more reliant than ever on their performance. Previous headcount reductions and cuts to bonuses for many other units will likely keep the total amount of money the lender pays out in variable compensation slightly below last year’s level, according to people familiar with the matter. No final decision has been made and the amount can still change, the people said, asking not to be identified discussing the private information.
- A giant fiscal jolt for the U.S. economy finally won approval in Washington Monday, but the half-year of political dysfunction that preceded the deal showcased a near-breakdown in American politics that President-elect Joe Biden will now be challenged to address. In a year marked by President Donald Trump’s impeachment trial and the government’s inability to suppress the deadly pandemic, the bitter Republican-Democratic fight over another Covid-19 relief package served as the final 2020 example of national interest being held hostage to political maneuvering. After six months of fruitless, on-again, off-again negotiations, lawmakers were forced into action this month. With Covid-19 the number-one cause of death for Americans in recent weeks and the job market’s recovery coming to a halt, the consequences of inaction became too great for either side to head home for the holidays without a deal.
- The era of swelling Treasury auctions may be over for now, but investors are still about to absorb a historical deluge of long-term debt next year, with potentially painful implications for returns. The math is simple: The Treasury is skewing its issuance more toward longer maturities, easing back on the bill sales it relied on in 2020 to pay for pandemic relief. At the same time, the Federal Reserve is likely to buy significantly less of the government’s debt on the secondary market in 2021, after hoovering up a massive amount this year to buoy the economy and keep markets functioning smoothly. For JPMorgan Chase & Co., the biggest U.S. bank, the bottom line is that investors are going to have to soak up a lot more coupon-bearing Treasuries in 2021, to the tune of a net $1.84 trillion after taking into account the Fed’s buying. That’s an unprecedented annual amount, and it’s a staggering turnaround from this year, when a net $441 billion was sucked out of the market by JPMorgan’s calculation.
*All sources from Bloomberg unless otherwise specified